“Forecasting short-term carbon emission futures price volatility:

information for hedging carbon emission futures risk”

AUTHORS Collins C. Ngwakwe

Collins C. Ngwakwe (2017). Forecasting short-term carbon emission

ARTICLE INFO futures price volatility: information for hedging carbon emission futures
risk. Environmental Economics (open-access), 8(4), 6-13

RELEASED ON Tuesday, 05 December 2017

RECEIVED ON Monday, 04 September 2017

ACCEPTED ON Wednesday, 04 October 2017

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JOURNAL "Environmental Economics (open-access)"

ISSN PRINT 1998-6041

ISSN ONLINE 1998-605X

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© The author(s) 2017. This publication is an open access article.

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Environmental Economics, Volume 8, Issue 4, 2017

Collins C. Ngwakwe (South Africa)

Forecasting short-term carbon emission futures price volatility:

information for hedging carbon emission futures risk
Abstract
This paper aimed to illustrate how short-term carbon futures speculators might use short-term carbon emission futures
data to predict and forecast carbon prices. The paper became apposite given ubiquitous research focussing on long-term
carbon futures data, which has left out short-term carbon emission futures speculators with information. Therefore, this
paper demonstrated that short-term speculators in carbon futures could indeed use short-term time series data on carbon
futures to make a reliable prediction and forecasting of carbon emissions futures price volatility within a short term and
thus decide on investment opportunity. The sample data results showed that short-term data could produce a
dependable in-sample futures prediction since the in-sample prediction fell within the 95% confidence interval. The
demonstration also showed that short-term carbon futures data could assist speculators to conduct a reliable short-term
out of sample forecast of carbon futures prices within the closer period. The paper offers practical assistance to carbon
futures speculators and is equally important for academic studies for business and economic students on discussions
and research bordering on carbon emissions, carbon trading, environmental economics and sustainable development.
More carbon short-term forecasting is encouraged – such research should compare short-term forecasting of carbon
futures amongst different carbon markets.
Keywords: carbon futures, carbon price, carbon market, emission futures, forecasting, carbon risk, the EU emissions
trading system (EU ETS), the clean development mechanism (CDM).
JEL Classification: Q54, G13.
Received on: 4th of September, 2017.
Accepted on: 4th of October, 2017.
Introduction 1 chance that a speculator purchases a futures
contract, the trader is fundamentally consenting to
Carbon emission trading has emerged as a global
purchase something that a trader has not yet
key catalyst, amongst others, for carbon emission
delivered at a set cost (Futures-Investor, 2017). The
reduction and sustainable economic development
emergence of global carbon emissions markets has
(Xiong, Shen, Qi, Price, & Ye, 2017; Rannou &
also engendered carbon emissions futures system
Barneto, 2016; Ellerman, Convery, & De Perthuis,
with the carbon trading markets.
2010). Similar to any other commodity traded in
exchanges, carbon emission prices are subject to Both the purchasers and traders in the carbon
vagaries posed by systemic (market) events that thus emissions futures market business principally go
cause fluctuations in the carbon emission futures into futures contracts mostly to support normal
market (Zhang, 2016). Given this inevitability of business risk speculation, which thus makes it that
attendant volatilities and the potentially inherent futures engagement resonates as a tool for financial
risk, carbon emission traders and/or investors need risk hedging (Kang et al., 2017; Futures-Investor, 2017).
information to reduce the risks that are associated This thus means that futures marketing deviate slightly
with carbon futures volatility. The use of time series from the business mode of spot or cash market, where
forecasting is one such important tool to provide the physical cash is exchanged, hence the need for
enabling forecast information on carbon emission predicting and forecasting to reduce the risk of loss
futures either within the short term or long term. carbon futurestrading by carbon price speculators.
In conventional financial markets, a futuresmarket is The global quest for carbon emission reduction
a kind of subordinate instrument or monetary (Clarke, Heinonen, & Ottelin, 2017; Doi, Popov,
contract, in which two traders consent to execute an Barcelona, & Asano, 2011) and mostly the reduction
arrangement of money related instruments or of industrial carbon emission has given rise to the
physical wares for future conveyance at a specific management and speculation of issues in
cost (Kang, Rouwenhorst, & Tang, 2017). On the environmental risk management and has thus become
part of strategic operational decisions for industries
involved in energy intensive processes. Accordingly,
 Collins C. Ngwakwe, 2017.
Collins C. Ngwakwe, Turfloop Graduate School of Leadership, Faculty of carbon futures or contract markets have emerged to
Management & Law, University of Limpopo South Africa, South Africa. provide a unique form of climate financial
This is an Open Access article, distributed under the terms of the services, which assists industries and/or traders to
Creative Commons Attribution-NonCommercial 4.0 International hedge their imminent or potential exposure and
license, which permits re-use, distribution, and reproduction, provided
the materials aren’t used for commercial purposes and the original work
the attendant mitigation of risks associated with
is properly cited. carbon emission compliance (ICE, 2017).
6

Whilst many of the research on carbon futures have
focused more on long-termforecast of carbon
futures, this paper stands outfrom others by
demonstrating that short-term time series could also
provide information on the carbon emission futures
volatility for the short time carbon emission
investors and speculators. This paper thus is
important for short time carbon emission futures
speculators as it demonstrates a handy non-
complicated approach for carbon emission futures
speculators who may not be skilled in advanced
forecasting approaches. Accordingly, the
objective of this paper is to demonstrate the use of
short-term time series for forecasting carbon
emission futures price and thus provide additional
information for short-termcarbon emission
speculators.
Therefore, the paper has the following structure.
After this introduction, the paper presents a brief
review of related literature; this is followed by the
methodology and results section. The last section of
this paper presents the conclusion and
recommendation.
1. Theoretical background
The cap and trade of carbon. There is no longer a
doubt (except for climate denials) that climate
change and the attendant potential catastrophic
result for humans is real. This is why the Stern
Review warned that, if ignored, climate change
would affect humankind globally as scientific
evidence alerts. According to Stern Review:
“The scientific evidence points to increasing risks of
serious, irreversible impacts from climate change
associated with business-as-usual (BAU) paths for
emissions” (Stern, 2007, p. 3).
The IPCC (2017) adds that a variety of studies
ranging from physiological, ecological and physical
add confirmation about the negative implications of
climate change on global biological and physical
systems.
The warning by scientists triggered action by world
bodies, partnerships and conventions such as the
Kyoto Protocol, the UN Framework Convention on
Climate Change (UNFCCC), the Intergovernmental
Panel on Climate Change (IPCC) etcetera. Of these,
the Kyoto Protocol stands out as the initiator of
guidance on the capping and trading of carbon to
alleviate the negative implications of continuous
carbon emission in its usual stance.
“The Kyoto Protocol is an international agreement
linked to the United Nations Framework Convention
on Climate Change, which commits its Parties by
setting internationally binding emission reduction
targets”(UNFCCC, 2014, p. 1).
Environmental Economics, Volume 8, Issue 4, 2017
Therefore, contemporary trading and pricing of
carbon takes a theoretical crux in the Kyoto
Protocol; hence, this paper also draws its theoretical
foundation on the Kyoto Protocol. This is because,
this paper discusses a critical aspects of emission
pricing by way of emission futures price forecasting,
which is rooted on Kyoto cap and trade. Therefore,
this paper contributes to the UN call for collective
action to halt unbridled emission of carbon
(UNFCCC, 2014).
The Kyoto Protocol gave impetus to three genre of
malleable carbon reduction mechanisms, namely the
joint implementation, the clean development
mechanism and the emission trading (Hepburn,
2007). Emission trading functions through the cap
and trade system. The cap system allows the
governments to use regulatory initiatives to limit the
quantity of carbon assigned or allowed for emission
per year; hence, this limit is called the cap. Once a
government has determined this cap, it then
allocates quotas of this cap to businesses through
emission allowance permits. This means that
companies that exceed their allowable emission
permits would be penalised through payment of
carbon tax. In the same vein, businesses that are not
able to utilise their assigned emission permit levels
may sell such remaining permits to other businesses,
such unutilized emission allowances gives rise to
buying and selling of carbon emission permits or
carbon trading. Since such purchasing and sales
occur in a competitive financial market
environment, it is open to risks associated with the
market, hence forecasting the price risks of carbon
emission becomes necessary to assist businesses
comply with their countries’ commitment to Kyoto
Protocol; this forecasting is the focus of this paper.
The following section reviews some related
literature on carbon futures and forecasting.
2. Related literature
Given the newness of carbon market (Chevallier,
2009), it is not surprised that research bordering on
futures market still focusseson conventional
commodity markets whilst research about carbon
futures is emerging. Despite the newness though,
some researchers have begun to carve a new
research niche to position carbon market and carbon
emission as a new commodity that deserve attention,
trading and monitoring using the forecast method.
Byun and Cho (2013) analyzed the instability
determining capacities of three methodologies:
GARCH approach that utilize carbon prospects
prices, a suggested unpredictability from carbon
alternatives prices, and the k-closest neighbor
approach. In view of the outcomes, they report that
7
Environmental Economics, Volume 8, Issue 4, 2017
GARCH models perform superior to an inferred
instability and the k-closest. This outcome
recommends that carbon alternatives have little data
about carbon futures because of their low
exchanging volume. It has also been found that the
price of energy and swapping of carbon trading has
volatilities and correlation implication on the price
of EU emission trading (Kanamura, 2016). Thus, the
fluctuation effect from one market to the other
causes risk spill over within and between the energy
and carbon markets with the tendencies of implicit
risk hedging volatility effect (Balcılar, Demirer,
Hammoudeh, & Nguyen, 2016). Accordingly, if risk
and fluctuation spill oversdo exist between energy
and carbon markets (Balcılar et al., 2016), it
becomes plausible to expect fluctuations in the
carbon futures, but what might be unknown is the
angle of fluctuation, which thus necessitates
constant research on fluctuation prediction such as
in this research. Forecasting the fluctuation in
carbon futures constitutes vital information for
carbon traders and perhaps for energy traders
especially as it provides the ground to nurture and
apply suitable hedging strategies (Balcılar et al.,
2016) to reduce the risk of loss in carbon trading
arising from unplanned fluctuations. A combination
of events study with the application of ICSS
algorithm approach has been empirically proven to
be an efficient tool for detecting and explaining
structural breaks in carbon futures (Zhu &
Chevallier, 2017). Amongst the findings of causes
of carbon futures structural breaks include inter alia,
periods of peak in carbon market, the 2008 and 2011
subprime crunch and the EU debt crunch,
respectively (Zhu & Chevallier, 2017).
Alberola, Chevallier, and Chèze (2008) studied the
day by day value basics of European Union
Allowances (EUAs) exchanged from 2005 as a
major aspect of the Emissions Trading Scheme
(ETS). Two structural fluctuations became apparent
on April 2006 and on October 2006 after the
European Commission declaration of stricter phase
of carbon trading. The outcomes broaden past
findings by demonstrating that EUA spot costs
respond to price of energy with weak forecasts, as
well as to unexpected temperatures changes amid
colder occasions. Whilst stressing the importance of
multiple forecasting approach on carbon futures,
Zhang, Zhang, Xiong, T., and Su (2017) applied the
support vector regression approach with a mixture
of another important tool, which is the particle swarm
optimization to forecast next day’s high and low
carbon price fluctuations. Their findings indicate
significant results, which show that the applied hybride
approach could greatly enhance the forecast of carbon
price fluctuation at the interval level.
8
On the other hand, the likely effect of
macroeconomic vagaries on carbon futures has also
been receiving research attention (Zeng, Nan, Liu,
& Chen, 2017; Chevallier, 2011; Chevallier, 2009),
but with conflicting arguments. Some have, based
on empirical results, argued that the carbon market
is not strongly affected by fluctuations in the
macroeconomic environment, but that the carbon
market ratherhas little or slightassociation with the
events in the macroeconomic environment
(Chevallier, 2009). Instead, the carbon futures
market might have a linkage with energy
fluctuations and issues that link with carbon
regulations or pronouncements (Baranzini, van den
Bergh, Carattini, Howarth, Padilla, & Roca, 2017;
Kanamura, 2016).
Since it is important to forecast futures volatility in
conventional financial markets, it therefore becomes
even more important to forecast the volatility in
carbon futures, given the market’s newness and the
intricacies implicit in the buying and selling of
carbon allowances (Smits, 2017; Gao, Smits, Mol,
& Wang, 2016). Any news whether real or mere
anecdote that flag likely impending and/or imminent
carbon meetings and attendant change in policies
triggers jittery and/or signals in the carbon futures
(Capoor & Ambrosi, 2008). The carbon futures
offer a vibrant catalyst to global quest for carbon
emission reduction; therefore, market-forecasting
tool such as the time series forecast is pertinent to
reduce the risk of loss by carbon market participants
who might apply the forecast results to hedge
systemic risk (Tang, Shen, & Zhao, 2015; MISFD,
2014) in the carbon market. Tang et al. (2015)
provide a detailed empirical study about carbon
market systematic risk in their analysis of systemic
risk inherent in carbon markets such as the EU ETS
and the CDM. Their study indicate that whilst the
EU ETS might present a systematic risk of about
0.07%, on the contrary, the CDM market tend to
present lower or greater systematic risk than the EU
ETS depending on the stage of the futures contract
(Tang et al., 2015, p. 333). Whilst the previous
research on carbon futures forecast have dwelt on
long-term time series; this paper uses the following
section to demonstrate that short term time series
data on carbon futures could provide carbon
emission price speculators with reliable prediction
and forecasting information on carbon emission
price volatility.
3. Method and results
Data used in this carbon futures forecast were
collected from the Investing.com carbon futures
monthly historical price data (Investing.com, 2017)
for the months April 2015 to July 2017. Hence, the
data constitutes monthly carbon futures data.
 Environmental Economics, Volume 8, Issue 4, 2017

The time series dataset set were entered into the the dependent variables, whilst the time trend and
Gretl software, following this, the researcher periodic dummies served as the independent
derived the time trend, which served as the main variables. Thus, the linear regression model is
independent variable; in addition to the time trend, represented as follows:
the periodic dummies were also derived and entered
into the Gretl software. Following this, a linear  = 0 + 11 + 22 + , (1)
regression analysis was conducted (Table 1);
thereafter, an in-sample forecast of carbon futures where  represents the carbon price;
was conducted to estimate the closeness of the 0 represents the regression intercept;
prediction to actual emissions price. 1 represents the regression coefficients;
First before the forecast, a linear regression was 1 represents the time trend;
conducted using the monthly carbon price as 2 represents the periodic dummies.
9

8.5

7.5
car b on f u t u r es

6.5

5.5

4.5

4
2016 2017

Fig. 1. The spikes of carbon futures in April 2015 to July 2017

In Figure 1, it can be seen that spikes peak up and carbon price. The sharp peaks make it easier for
down, which connotes some elements of a carbon speculator to watch out for likely
seasonality in carbon price. A sharp peak is repeats in future periods, hence visualisation of
evident in some months in 2015, 2016 and 2017, the spikes might also serve as a forecasting
all contributing to an uneven downward trend in apparatus.
Table 1. Linear regression between of carbon futures with time trend as main regressor. Model 5: OLS,
using observations September 2015 – July 2017 (T = 23). Dependent variable: carbon price
Coefficient Std. Error T-ratio P-value
const 6.895 0.901797 7.6458 0.00002 ***
time -0.107273 0.039661 -2.7047 0.02213 **
dm2 -0.482727 1.11686 -0.4322 0.67476
dm3 -0.545455 1.11897 -0.4875 0.63644
dm4 -0.0181818 1.12248 -0.0162 0.98740
dm5 0.254091 1.12738 0.2254 0.82622
dm6 -0.428636 1.13364 -0.3781 0.71325
dm7 -0.241364 1.14124 -0.2115 0.83675
dm8 -1.13773 1.36759 -0.8319 0.42487
dm9 0.465909 1.12738 0.4133 0.68813
dm10 1.28318 1.12248 1.1432 0.27960
dm11 0.700455 1.11897 0.6260 0.54535
dm12 1.60773 1.11686 1.4395 0.18057

Mean dependent var 5.783913 S.D. dependent var 1.396368

Sum squared resid 12.45811 S.E. of regression 1.116159
R-squared 0.709578 Adjusted R-squared 0.361071
F(12, 10) 2.036053 P-value(F) 0.134330
Log-likelihood -25.58468 Akaike criterion 77.16936
Schwarz criterion 91.93078 Hannan-Quinn 80.88181
rho 0.609406 Durbin-Watson 0.723799
Table 1 indicates that only the time trend is significant level of 0.05; none of the monthly dummies is
at a P-value of 0.02, which is smaller than the alpha significant since all the P-values are higher than 0.05.

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Environmental Economics, Volume 8, Issue 4, 2017

the negative value of the time coefficient indicate time (within the sample period), which is a good
that carbon prices have the tendency to decrease with information for carbon speculators.
Table 2. In-sample prediction September 2015 – July 2016 for 95% confidence intervals, t(10, 0.025) = 2.228
Obs Carbon price Prediction Std. Error 95% interval
09 2015 8.23000 7.25364 1.38757 (4.16194, 10.3453)
10 2015 8.71000 7.96364 1.38757 (4.87194, 11.0553)
11 2015 8.65000 7.27364 1.38757 (4.18194, 10.3653)
12 2015 8.29000 8.07364 1.38757 (4.98194, 11.1653)
01 2016 6.07000 6.35864 1.38757 (3.26694, 9.45033)
02 2016 5.01000 5.76864 1.38757 (2.67694, 8.86033)
03 2016 5.22000 5.59864 1.38757 (2.50694, 8.69033)
04 2016: 6.18000 6.01864 1.38757 (2.92694, 9.11033)
05 2016 6.10000 6.18364 1.38757 (3.09194, 9.27533)
06 2016 4.47000 5.39364 1.38757 (2.30194, 8.48533)
07 2016 4.43000 5.47364 1.38757 (2.38194, 8.56533)
08 2016 4.47000 4.47000 1.57849 (0.952911, 7.98709)
09 2016 4.99000 5.96636 1.38757 (2.87467, 9.05806)
10 2016 5.93000 6.67636 1.38757 (3.58467, 9.76806)
11 2016 4.61000 5.98636 1.38757 (2.89467, 9.07806)
12 2016 6.57000 6.78636 1.38757 (3.69467, 9.87806)
01 2017 5.36000 5.07136 1.38757 (1.97967, 8.16306)
02 2017 5.24000 4.48136 1.38757 (1.38967, 7.57306)
03 2017 4.69000 4.31136 1.38757 (1.21967, 7.40306)
04 2017 4.57000 4.73136 1.38757 (1.63967, 7.82306)
05 2017 4.98000 4.89636 1.38757 (1.80467, 7.98806)
06 2017 5.03000 4.10636 1.38757 (1.01467, 7.19806)
07 2017 5.23000 4.18636 1.38757 (1.09467, 7.27806)

Table 2 presents the in-sample prediction, to the predicted carbon price (column 3 from
ascertain how closely time series prediction might the left) shows that the predicted price
help carbon speculators. A visual overview actual and the actual carbon price are very closely
carbon price (column 2 from the left) and related.
12
9 5 p er cen t in t er v al
car b on p r ice
f or ecast

10

0
2015.8 2016 2016.2 2016.4 2016.6 2016.8 2017 2017.2 2017.4

Fig. 2. Lines of in-sample prediction September 2015 – July 2016 and the actual lines

Figure 2 is the line chart of in-sample prediction of substantiates the accuracy of the in-sample carbon
carbon price, and it can be seen that the blue line price forecast since the red and blue lines run close
(the forecast or prediction) runs very close to the to each other in a steady manners along the
actual carbon price (red line). The line chart trajectory.

10
 Environmental Economics, Volume 8, Issue 4, 2017

Table 3. Out-of-sample forecast for July 2017 – July 2018 For 95% confidence intervals, t(10, 0.025) =
2.228
Obs Carbon price Prediction Std. Error 95% interval
08 2017 Undefined 3.18273 1.64868 (-0.490752, 6.85621)
09 2017 Undefined 3.54136 2.04744 (-1.02063, 8.10335)
10 2017 Undefined 4.25136 2.04744 (-0.310626, 8.81335)
11 2017 Undefined 3.56136 2.04744 (-1.00063, 8.12335)
12 2017 Undefined 4.36136 2.04744 (-0.200626, 8.92335)
01 2018 Undefined 2.64636 1.71645 (-1.17814, 6.47086)
02 2018 Undefined 2.05636 2.04744 (-2.50563, 6.61835)
03 2018 Undefined 1.88636 2.04744 (-2.67563, 6.44835)
04 2018 Undefined 2.30636 2.04744 (-2.25563, 6.86835)
05 2018 Undefined 2.47136 2.04744 (-2.09063, 7.03335)
06 2018 Undefined 1.68136 2.04744 (-2.88063, 6.24335)
07 2018 Undefined 1.76136 2.04744 (-2.80063, 6.32335)

Table 3 presents the out of sample forecast. Since accuracy by looking at the probability level, which
there is no actual carbon price in the out of sample is 0.025, meaning that the forecast falls within the
forecast to compare with, one could interpret the 95% confidence interval, which is a good forecast.
10
9 5 per cent int er v al
for ecast

-2

-4
2017.6 2017.7 2017.8 2017.9 2018 2018.1 2018.2 2018.3 2018.4 2018.5

Fig. 3. Out-of-sample forecast and actual lines

Figure 3 presents the line chart for the out of sample
forecast. The accuracy of prediction or forecast can
be seen from the fact that the blue line (the forecast)
lye within or inside the 95 percent confidence
interval – an indication of prediction reliability. This
can provide a visual picture of the likely future of
carbon price for carbon price speculators.
Discussion of results
The carbon futures price was regressed against the
time trend, which is the main independent variable
(the main regression in this linear regression test).
An additional variable, periodic dummies (in this
case the different month’sdata of carbon emission
price) were also included, thus giving one dummy
for each month within the period covered by the
short time series data sample (April 2015 to July
2017). Furthermore, in order to control for
seasonality effect, before running the regression,
one month dummy was excluded from the periodic
dummy variable, which is April 2015. Firstly, a line
chart of volatility in Fig. 1, show that indeed carbon
futures price is fraught with some volatilities, which
is noticeable by the up and down spikeswith a
gradual descending price trend. Secondly, the linear
regression results show that, as the main regressor,
time trend does have an influence on carbon futures
price volatility at a P-value of 0.02, which is lower
than 5% alpha level. This thus shows that time trend
has a significant effect on carbon futures price
volatility even within the short-term time series and
this provides additional information for short-term
carbon futures price speculators to consider time
trend as a factor in their carbon futures speculation.

11
Environmental Economics, Volume 8, Issue 4, 2017

However, the monthly periodic dummies were not carbon emissions trading and markets to
significant. To demonstrate that short-term time encourage carbon emissions reduction. Similar to
series futures data could assist short-term carbon other commodity markets, the futures market,
emission speculators in their carbon futures which is a contract to exchange a commodity
investment decisions, the in-sample prediction, based on a contract price has also become
which appears in Table 2 and Fig. 2 show that short- operational in the carbon markets. Therefore,
time carbon futures time series data, can provide a given the newness of carbon emission markets
reliable short-term prediction of carbon price. This and the implicit systemic risk, carbon emission
is evident in Fig. 2, which shows that the prediction futures speculators need additional information to
line falls within the 95% confidence on the actual assist in speculating risk and to hedge such risks
carbon price.This in-sample result also provides a through effective investment planning. This paper
carbon emission futures speculator with the thus made an important attempt to provide a
confidence to use out-of-sample forecast, which demonstration of how short-term carbon futures
appears in Fig. 3 and which gives a 95% confidence speculators could use short-term carbon futures
out-of-sample forecast of some months ahead. This time series data to predict and forecast carbon
demonstration is important given that many prices within the short time period. This paper
investors even in carbon emissions trading engage stands out from other similar research on carbon
in short-term period speculation; this genre of emission futures as previous papers have
investors therefore deserve additional information to focussed on long-term time series demonstration,
assist with their carbon emission price risk reduction thus leaving out short-term speculators with
strategies. The above illustrations have provided enabling information on whether short-term time
such additional information. series might assist them in predicting and
forecasting carbon futures. This paper has
Conclusion
demonstrated that short-term speculators in
The objective of this paper was todemonstrate that carbon futures could indeed use short-term time
carbon futures price could be reliably predicted with series data on carbon futures to predict and
the method of time series forecasting to provide forecast futures price volatility within a short
short-term information for carbon price speculators. term and thus decide on investment opportunity.
In order to achieve this objective, the paper used a The sample data results showed that short-term
sample of carbon futures price from April 2015 to data could produce a reliable in-sample futures
July 2017 and used the Gretl software to conduct the prediction since the in-sample prediction fell
time series analysis. The analysis produced an in- within the 95% confidence interval. The
sample and out of sample predictions, which demonstration also showed that short-term
showed reliability of forecast at a P-value below the carbon futures data could assist speculators to
0.05 significant level or which fell within the 95% conduct a reliable short-term out of sample
confidence level. This shows that short-term carbon forecast of carbon futures prices within the
price speculators might also benefit from forecasting closer period of some months ahead. Therefore,
using short time series, similar to the benefits the paper offers practical assistance to carbon
derivable from long-term time series forecasting.
futures speculators and isequally important for
In an era of growing global concern and campaign academic studies for business and economic
for sustainable development, carbon emission students on discussions and research bordering
reduction has become the prominent focus given on carbon emissions, carbon trading,
scientific evidence of the enormous impact of environmental economics and sustainable
carbon emission on the ozone layer and the development. More carbon emissions futures
concomitant negative reverberation on climate short-term forecasting is encouraged – such
change. Accordingly, international agreements on research should compare short-term forecasting of
carbon policy has galvanized the establishment of carbon futures amongst different carbon markets.
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